Rajat Joshi
Hr Consulting ,trainer -creative Thinking
Hr Manager
Rajesh Balasubramanian
Head - Operations & Delivery
Hr Manager

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Hi Folks,

Linking performance incentive to KRAs for HR Professionals in a manufacturing industry.

Typically its easy to link incentives to KRAs for sales & manufacturing positions but for HR it is a little bit a grey area.

Can somebody help me out as how we can define the parameters to be linked with financial incentives in the following areas :

My friend has defined the following KRAs

• Competency Mapping of organization to be linked with processes like Recruitment, Appraisal & ISO 9000.

• Conduct Training Programs – internally & externally.

• Review & revamp the performance Appraisals of company and link it to the regular process with ownership by the Line Managers.

• Proactive recruitment of key positions by


Attending seminars and


• Review of all job responsibilities & tasks processes.

• Make the company- a preferred employee’s place of work.

• Initiate Employee Relations activities to motivate the employees and enhance the productivity thereby develop a happy & hardworking workforce.

• Integrated PR efforts to highlight the success story of the company in media.

If any ideas or views would be greatly appreciated.


Rajat Joshi

From India, Pune
Hi Rajat

On what grounds the incentive system is deployed? individual contribution (based on PA ranking incentives will be computed) if a mix of indvidual contribution and organization profit - a certain % will be based on individual performance and the rest would be decided upon profits made by the organization - on a quarterly basis - This is in line with BSC

If it is based on the individual contribution - KRAS are mapped against the timelines - ( for eg; competency identification - 2 months, profining and mapping of individuals - 3 months etc)

Tranining - matrix need to be prepared - number of programs, participants, ROI computation etc

PMS - revamping the system on a competency based model - timelines as well as surveys - method and efficacy of communication, acceptance, employee perceptivty on advantages etc

Employee engagement - if that crosses a % over and above teh current levels -

ESS - if the index shows higher level of employee satisfaction

Selection - usual matrix like time to fill, cost etc

These are few things coming onto my mind. Correct me if am wrong. I am also learning and not a Subject matter expret



From India, Bangalore
Hi Rajesh & Lalita,

Thanks for your inputs..i really appreciate it..

Just would like to share the contrarion view on this..let me know what you think..

Are you considering pay for performance ? Think again....

The idea of merit pay or pay for performance is so widely accepted that almost every organization says it has a merit pay system. The major reason for the popularity of merit pay is the belief that it can motivate job performance and increase organisational effectiveness. Research shows that this can be true if pay has two fundamental properties:

• a)Pay has to be important to people

b)Pay has to be tied to their performance in visible, credible and direct ways as perceived by them

Think :

a) How important is pay to your people? More importantly is the pay increase big enough to be important to your people ?

b) Are salary increases perceived to be tied to performance in your organization or are they considered to be a function of favoritism, general increases etc ?

Since pay is important to most people, the critical factor is if a perceived relationship exists between pay and performance. Despite the widespread support for the policy of merit pay, there is considerable evidence that in most organizations, merit pay systems fail to create a perceived relationship between pay and performance. As a result of this failure, they fail to produce the positive effects expected of them. Here is a brief review of the reasons why merit pay systems often do not produce the perception that pay and performance are related.

Problems with Merit pay systems:

Poor performance measures

Fundamental to any effective merit pay systems are objective, comprehensive measures of performance. Without these, it is impossible to relate pay to performance. There is a great deal of evidence that in most organizations, PA is not done well, and that as a result, no good measures of individual or group performance exist. In the absence of good objective measures of performance, most organizations rely on the judgments of managers. These judgments are often seen as invalid, unfair & discriminatory. Because the performance measures are not trusted when pay is based on them, little is done to create the perception that pay is based on performance. Indeed in the eyes of many employees, merit pay is a fiction, which managers try to perpetuate.

Think :

How good are the performance measures in your organization? Who decides these? Are these tracked?

Poor communication

Salaries of many individuals in organisations are kept secret. In addition, pay practices and formulas too are kept secret. Salary increases, bonuses, highest & lowest raises all are kept secret. Hence the typical employee is often asked to accept in faith that pay & performance are related without ever being able to determine if they are.

Since trust build only with communication and exchange of information, secrecy in pay & performance decisions builds up mistrust. Many organizations don’t bother to communicate at all how the system works as it needs a lot of energy and time and typically the HR department is understaffed. Even when they do they do so in ways that lead people to question the credibility of the system. For eg. Firms often say that all pay increases are based on merit, but all employees get uniform increases because of inflation and changes in the labor market. This raises the question ‘how much did merit have to do with their merit increase?’

Think :

How well have your employees understood how pay increases and performance are decided? How often and how well do managers communicate with their subordinates on these issues?

Poor delivery systems:

Merit pay policies and procedures often lead to actions, which do little to actually relate pay to performance. They are also complex that they fail to clarify the relation between pay and performance. The merit salary increase in particularly poor as it allows only small changes in total pay to occur in one year. Past merit payments are often made part of the individual’s base salary. Thus a poor performer who used to perform well once upon a time can still get highly paid. Bonus plans may typically relate pay better to performance. However they are often kept low or are the same amount to everybody.

Think :

What are your stated and unstated policies towards deciding pay increases? How much of them have been genuine enough to motivate performance?

Poor Managerial Behavior:

Managers’ actions often negatively affect perceived connection between pay & performance. They recommend widely different pay increases or bonuses for their subordinates when large performance differences exist. They will not recommend very large or very small pay actions as it means explaining why someone got a low raise.

Such difficulty to explaining raises leads to managers disowning the pay decision. They say that they fought hard to get the employee a good raise but lost. This communicates to the subordinate that pay increases are beyond their control and not based on performance.

Think :

what are the reasons that are typically given to explain how a raise was arrived at ?



From India, Pune
Dear Rajat

Thought provoking. Appreciate and accept the realities embedded in it.

Answering to the first part. As HR fraternity we believe that Pay is no more an interestinf factr for changes - this can be true for senior level people who may inclined towards roles and responsibilities. Even now, people are hoping jobes for pay hike only, predomianatly. Cultre and climate etc are perceptions and tends to have changes

PA is used as a tool for the increase in pay - hence at the very moment an employee is told about PA is his imagniation of salary hike. However best prattice we can adopt, the objectivity of PA is still questionnable. There are organizations maintaining critical incident diary methods for specific contributions and organizations adopt BSC or HR strategy aligned to business strategy are having goal setting and objective measures for evaluating contributions. Are people happy with the apprisal there? Not fully and never can be !!!

Indeed the HR communication framework plays a vital role in enabling employees understanding the system and process. For eg; there is telecom company which gives the % of increase at various contribtuion levels achieved by the employee in PA form itself, there are no confusions emanating out there. The rationale of qualitative measures and competencies evaluation may entail an amount of discomfort for employees

When objectives are set by employees and their line managers - with proven measurable taregts (for eg: filling the 2 critical positions during April, conduct ESS in June, ensure the completion of PA procees by mid of May etc) the KRAs and KPIs are clear, leaving no possibilities of discrepancies in evaluation of the contribution

In the nut shell, you point is what all the HR professionals are wary about - communication and objective measuring of performance - How will we achieve that

Since the line managers hold the responsibility of HR managers for their associates - HR role would be to bring in effective development programs enabling the line managers to act as HR managers

This is my view am not sure of taking into view of all the points raised by you



From India, Bangalore
Hi :) ,

thanks a lot for all those inputs. iam actually working on this 'pay and performance' in my company. :D

We are into product development in the IT field and I had to develop an incentive scheme for the developers.

At first this sounded a difficult job. But then I broke this into bits and came up with first things first. So first I sat with the teams and understood their work. Now I am devising a performance review system and form that would help the employees understand their job and set objectives, which till now was not happening.

At this stage I happened to read this article, especially the link given by lalitha. Even the article explains the step by step procedure of performance review. All these worked like a bible to me and now I see myself smoothly sailing over the process.

I have divided the form into 3 portions. One would be setting KRAs which is annual. The next part is Objective setting which would be done on a quarterly basis. The third is the self review which is again annual. This part would be confidential with the HR dept and would not be given to the reporting authority of the employee. As i was devising the system I had a few queries and my opinion on the same.

1. Should the employees working on contract be a part of this review?

The contract employees would be paid through an agency which would take care of their pay. So they can fill the 'objective setting' sheet and not required to fill the KRA sheet, which would decide the annual increment.

2. Should the contract employees be paid the quarterly incentives?

They are eligible for the quarterly incentives as they are the part of the revenues that are generated and directly/indirectly they would are one of the influencing factors in an organisation.

3. How to go about the ratings given by the employee and the reviewer on a specific attribute of the employee?

Along with the ratings there is also a provision for both the employee and the reviewer to justify their ratings. The average of both would be considered to measure the attributes.

4. While preparing the review system, I also had in mind the HR dept, reporting authority of the employee and his peers. So I have given a provision to rate all of them and justify. The reason behind this is they are one of the most influencing factors in an organisation, but they are not considered while evaluating the performance of the employees. And also this would be handy when the review have to be carried on with them.

5. For every objectives the employee sets for himself how do we link it with incentives? [the employee here is an IT developer]

We could probably distinguish between the objectives that are directly related to this work and that which would influence his work. Then a specific score has to be given to each objectives. But again, the problem is that Iam not able to define the scores.

6. What about the new employees?

The employees joining in any part of the quarter would start their objective setting in the start of the quarter. they would also have to fill in their KRAs along with their objectives. for eg: an employee joining in the month of May would be filling his objectives only in the month of July. This would also give him enough of time to settle down and also he would not have to be a part of the incentive scheme even when he is yet to perform.

Please let me know your comments on my views and also any suggestions on the same.


Soumya Shankar

From India, Bangalore

Self rating and appraiser rating must be in consensus and hence cannot be kept in isolation. Any amount of discrepany and dissent will be dealt by the reveiwer. This is my view ( kindly correct me if am wrong)

Contract staff also need to be part of the appraisal on an annual basis to hike the salaries and am not sure of the companies paying off incentives or performance bonus to them

Competencies are to be give some weighatge say 20% of the overall rating wherein the KRAs will be having 80% weightage. The competencies identified are to be rated by self and appraiser and you can also provide critical incident method for justifying the rating by appraisee

Going for 360 degree you got to be very clear on the maturity level of your company beofre implementing. Since this is used only for feedback purposes on potential development and not for salary hike you will have to decide on your program objective

Typically the modules given to people and quality as well as documentation and reveiw etd are the measures used for assessing the performance at junior levels. If people are completing the tasks at time and accepted quality parameters defined you can consider the completion of tasks meeting expectations - decide % to be given on CTC - there are two ways of looking at one is individual contribution and oragnization performance - you can have two measures for defining the incentives

New inductees - unless we finalise on the confirmation appraisal they are not eligible for the rest - this is my view

I am unsure of responding to you all the points raised by you

All views and suggestive measures for improving by knowledge levels are welcome

Best regards

Rajesh B

From India, Bangalore
thanks for the reply rajesh. Your mail was clear to me, but can you define 'weightages'/ 'scores'. Iam finding it difficult to judge if the weightages given to a specific job is in line to what the employee is doing. If no, then how should it be corrected. But if it is right, then how do we convert it to the incentives.
Plz help me out.
Soumya Shankar

From India, Bangalore
Hi Soumya
Assigning weightage will have to be agreed upon by the parties involved for eg:
Coding - 50%
Quality 30%
documentation - 10% etc
This is primarily based on the KRAs of the concerned employee
the weightage of both KRAs and Competenices are added and overall rating will be calculated where the scores are to be converted into the point scale - 3 or 4 or 5 you are using and the point scale will describe achievement of what % of target set
TRanslating scores into incentives -
If achievement is 100% and above - x%
80 - 99% - x% etc
x can be on CTC or basic
Hope this gives some light

From India, Bangalore
Hi everybody, :)
I am new member. I am glad for being one. All the information shared by Rajat, Rajesh and especially the link by Lalitha related to increments helped me a lot.
Thanks to all of you.
Sabi :)

From India, Bharat
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